Short-term stock price momentum, long-term stock price reversal and the effect of information uncertainty

Abstract

Zhang (2006) investigated the role of information uncertainty in short-term Capital Assets Pricing Model (CAPM) anomalies and cross-sectional variation in stock returns. He provided evidence suggesting that investors tend to underreact more to new information when there is more ambiguity with respect to its implications for firm value. Saleh (2007a) explored the overreaction hypothesis using data from the Amman Stock Exchange (ASE). In particular, he aimed to investigate the sensitivity of defining the duration of the formation period. He provided evidence of stock return continuation in the short and medium terms and stock return reversal in the long term. This paper aims to extend the paper of Saleh (2007a) by addressing whether the winner-loser anomaly can be explained by differences in information uncertainty. The paper concludes that controlling for information uncertainty mitigates the winner-loser effect especially for high-uncertainty stocks when cumulative excess returns are calculated over the...